Thoughts on business, entrepreneurship, and life from a Silicon Valley entrepreneur and writer.

Monday, July 15, 2013

The Right and Wrong Ways To Use Scarcity in Marketing

Nir Eyal is one of the top minds in applying psychology to the startup world. His posts are a must-read, and he's also a nice guy. My only complaint is that I foolishly went barefoot running with him and developed a foot problem that kept me on a cane for months (I had a problem that the running exacerbated; under normal circumstances, the run probably wouldn't have harmed me. Also, Nir repeatedly encouraged me to wear shoes or forgo the run, but naturally, I was too macho to listen to reason).

I was particularly interested in his recent post on the psychology of scarcity. Many of the startups I work with are forced to meter user adoption; even with the benefit of Amazon Web Services, it's still tricky to scale up under heavy demand. As a result, they need to manage the issue of scarcity.

Nir stepped in with a great explanation of how scarcity impacts the desirability of a product, complete with specific examples:http://bit.ly/12BvIWU

"When scarcity is a feature, as was the case for early Facebook converts, the service’s limited access increased its appeal.

Mailbox and Tempo,
both iOS productivity apps, released their services to small groups of
users. If you were not at the front of the line, you had to wait for an
indefinite period of time.

But unlike in the case of Facebook, frustrated customers punished Mailbox for the wait. They trashed the app by writing poor reviews despite never having actually used it.

The study showed that a product can decrease in perceived value if it starts off as scarce then becomes abundant.

To potential users, Mailbox and Tempo’s scarcity backfired,
at least in the short-term. Attempts to placate users by telling them
about the technical limitations of “load testing,”
obviously didn’t cut it. Instead, the message received was akin to,
“this is going out to the cool kids now and the rest of you plebs, well,
we’ll see.”

In contrast, Facebook and Quibb never made any appeals for
patience or promises of expanding to the masses. Their products
started-out as scarce and the founders closely guarded the perception
that they will remain so."

Scarcity sends a powerful signal, but the ending of that scarcity also sends a powerful signal. If you decide to play the scarcity game, don't switch to abundance without careful consideration.

Based on Nir's example, I'm going to advise my startups to avoid calling attention to scarcity unless they intend to maintain that scarcity for a significant time. Otherwise, they're actually reducing the perceived value of their product over simply saying nothing.